State aid: Commission approvesHungarian Mortgage Support Scheme to help households affected by financial downturn

The European Commission has approved under EC Treaty state aid rules the Hungarian Mortgage Support Scheme which is aimed at helping homeowners affected by the current economic downturn. Under the scheme, the Hungarian State would guarantee "bridging loans" which cover part of the monthly instalments of the original mortgage loans for a period of up to two years. The Commission concluded that the measure is compatible with Article 87.2.a of the EC Treaty that allows state support to individual consumers under certain conditions. In particular, the aid has a social character and is provided on a non-discriminatory basis.

Competition Commissioner Neelie Kroes said: "Hungary's housing loans guarantee Scheme will support those who could fall behind on their mortgage payments. In the midst of the current financial crisis, it is very important that help is provided not only to banks, but above all directly to households in difficulty".

On16 June 2009, Hungary notified the measure which targets homeowners who are at risk of being unable to service their mortgage payments due to redundancy or other temporary income shocks. Under the scheme, eligible borrowers can conclude so-called "bridging loans" with banks enabling them to redeem part of their mortgage instalments for a period of up to two years. Thus, the bridging loan backed by a state guarantee provides a breathing space to restructure their mortgage and keep their family home.

The Hungarian State would guarantee repayment of up to 80% of the bridging loans. The support scheme, which applies to mortgage loans concluded before 30 June 2009, will be closed after 30 June 2010, reflecting Hungary's expectations of the impact of the downturn on employment and on the rate of repossessions.

The risk of non-repayment of the principal not covered by the bridging loan remains with the lender. Moreover, the guaranteed bridging loan has to be redeemed after the initial two year period; the Hungarian State will only pay out on the guarantee in the event that the individual is not able to repay the bridging loan.

The Commission has concluded that although the measure is mainly aimed at supporting households, it cannot be excluded that an advantage will be granted not only to the borrowers but also to the banks participating in the guarantee scheme, as indirect beneficiaries of the aid. However, the Commission has also found that the aid measure is aimed at well-defined objectives of common interest; it is well designed to deliver them and limits the distortions of competition. The scheme has been approved under Article 87(2)(a) of the EC Treaty as it provides an aid of a social character to individuals, affected by a temporary income shock and at risk of losing their home, on a non-discriminatory basis, given that it is open to all banks having granted mortgages in Hungary.

The non-confidential version of the decision will be made available under the case number N 358/2009 in theState Aid Registeron theDG Competition websiteonce any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in theState Aid Weekly e-News.